https://www.carbonbrief.org/solar-now-cheaper-than-grid-electricity-in-every-chinese-city-study-finds
[links and images in online article]
12 August 2019 16:56
Solar now ‘cheaper than grid electricity’ in every Chinese city, study finds
Solar power has become cheaper than grid electricity across China, a
development that could boost the prospects of industrial and commercial
solar, according to a new study.
Projects in every city analysed by the researchers could be built today
without subsidy, at lower prices than those supplied by the grid, and
around a fifth could also compete with the nation’s coal electricity prices.
They say grid parity – the “tipping point” at which solar generation
costs the same as electricity from the grid – represents a key stage in
the expansion of renewable energy sources.
While previous studies of nations such as Germany and the US have
concluded that solar could achieve grid parity by 2020 in most developed
countries, some have suggested China would have to wait decades.
However, the new paper published in Nature Energy concludes a
combination of technological advances, cost declines and government
support has helped make grid parity a reality in Chinese today.
Despite these results, grid parity may not drive a surge in the uptake
of solar, a leading analyst tells Carbon Brief.
Competitive pricing
China’s solar industry has rapidly expanded from a small, rural
programme in the 1990s to the largest in the world. It is both the
biggest generator of solar power and the biggest installer of solar panels.
The installed capacity of solar panels in China in 2018 amounted to more
than a third of the global total, with the country accounting for half
the world’s solar additions that year.
Since 2000, the Chinese government has unveiled over 100 policies
supporting the PV industry, and technological progress has helped make
solar power less expensive. This has led to the cost of electricity from
solar power dropping, as demonstrated in the chart below.
In their paper, Prof Jinyue Yan of Sweden’s Royal Institute of
Technology and his colleagues explain that this “stunning” performance
has been accelerated by government subsidies, but has also seen China
overinvesting in “redundant construction and overcapacity”. The authors
write:
“Recently, the Chinese government has been trying to lead the PV
industry onto a more sustainable and efficient development track by
tightening incentive policies with China’s 531 New Policy.”
The researchers say the subsidy cuts under this policy in 2018 were a
signal that the government wanted to make the industry less dependent on
state support and shift its focus from scale to quality.
This, they say, has “brought the industry to a crossroads”, with
discussions taking place in China about when solar electricity
generation could achieve grid parity.
In their analysis, Yan and his team examined the prospects for building
industrial and commercial solar projects without state support in 344
cities across China, attempting to gauge where or whether grid parity
could be achieved.
The team estimated the total lifetime price of solar energy systems in
all of these cities, taking into account net costs and profits,
including project investments, electricity output and trading prices.
Besides establishing that installations in every city tested could
supply cheaper electricity than the grid, they also compared solar to
the price of coal-generated power. They found that 22% of the cities
could build solar systems capable of producing electricity at cheaper
prices than coal.
Embracing solar
Declining costs of solar technology, particularly crystalline silicon
modules, mean the trend in China is also playing out around the world.
In May, the International Renewable Energy Agency (IRENA) said that by
the beginning of next year, grid parity could become the global norm for
the solar industry.
Kingsmill Bond, an energy strategist at Carbon Tracker, says this is the
first in-depth study he has seen looking at city-level solar costs in
China, and is encouraged by this indication of solar becoming ever-more
competitive. He tells Carbon Brief:
“The conclusion that industrial and commercial solar is cheaper than
grid electricity means that the workshop of the world can embrace solar.
Without subsidy and its distorting impacts, and driven by commercial gain.”
On the other hand, Jenny Chase, head of solar analysis at BloombergNEF,
says the findings revealed by Yan and his team are “fairly old news” as
the competitive price of rooftop solar in China has been known about for
at least a year.
She notes that this does not mean there has been a huge accompanying
rollout of industrial and commercial solar, and says this is partly
because of the long-term thinking required for investment to be seen as
worthwhile.
The lifetime of a PV system tends to be around two decades, whereas the
average lifespan of a Chinese company is only around eight years,
according to Chase. Furthermore, there is an even simpler explanation,
as she explains to Carbon Brief:
“There’s also the fact that companies just can’t be bothered a lot of
the time – there are roofs all over Europe where solar could probably
save money, but people are not jumping to do it.”
According to Chase, a “much more exciting” development came earlier this
year, when the Chinese government developed a policy for “subsidy-free
solar”.
This involved guaranteeing the current coal-fired power price to solar
plants for 20 years, creating what is essentially a low feed-in tariff
and leading to what she describes as “a lot of nice, low-risk projects”.
As for the beneficial effects of grid parity, based on how things have
played out in countries where it has already been achieved, Chase says
it does not necessarily mean a significant uptake of solar power will
follow:
“Grid parity solar is never as popular as subsidised solar, and
ironically you don’t generally have a rush to build grid parity solar
because you may as well wait until next year and get cheaper solar.”
Policy proposals
In their paper, Yan and his team lay out policy changes they think would
help provide an economic incentive, in combination with grid parity, to
encourage the uptake of solar power systems.
Technology costs may have fallen for smaller solar projects of the type
being deployed on the rooftops of businesses, but they note that the
so-called “soft costs” – including installation and maintenance – tend
to be “very impactful”.
Specifically, they say aspects such as financing, land acquisition and
grid accommodation, which make up over half the total cost, could be cut
down:
“Labour costs are not significant [in China] because of the relatively
low wages of direct labour and related installation overhead. Customer
acquisition has largely been achieved in China by the mature market,
with customers’ familiarity with PV systems, and with the perception
that PV systems are a reliable technology. However, policymakers should
consider strengthening the targeted policies on the following soft costs.”
Among the measures they suggest are new financing schemes, an effort to
“streamline” the complicated procedures and taxes involved, and more
geographically targeted government policies.
As their analysis showed the price of solar electricity had fallen
further in some cities than others, the researchers recommend targeting
future subsidies at the cities that are performing less well – keeping
costs to a minimum while still providing support when it is most needed.
Yan, J. et al. (2019) City-level analysis of subsidy-free solar
photovoltaic electricity price, profits and grid parity in China, Nature
Geoscience, https://doi.org/10.1038/s41560-019-0441-z
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